Arc floats higher as investors hope to cash in their chips

Shares in ARC International, the British chip designer whose clients include giants such as Intel, have closed up almost a third after the company admitted it has received a bid approach.

In a terse statement, released after the stock started to race away, the company admitted:

The board of directors of ARC International plc notes today's movement in the Company's share price and confirms that it is in discussions with a third party which may or may not lead to an offer being made for the entire issued and to be issued share capital of the Company.

The discussions are at a preliminary stage and there can be no certainty that an offer will be made for ARC or as to the terms on which any offer would be made.

At its closing price of 11.75p - up 3.25p - the company is worth just £18m and a takeover at these levels would mark a dramatic comedown for ARC.

It floated in late 2000 during the British tech stock boom and finished its first day as a quoted company with a valuation of £1.1bn.

Those heady heights were never seen again.

The flotation itself was a controversial affair as ARC's investment banker placed stock exclusively with institutional investors at 210p and when the shares started trading they immediately raced to 410p as retail investors piled in.

In fact one of ARC's original backers was former Dragon's Den resident Richard Farleigh. The Australian investor put £3m into the firm and his stake was worth £40m when the company listed, though he was precluded from selling out at the time.

A year after the IPO, ARC booted out its chief executive amid mounting losses, a string of profit warnings and fears the firm would never make a profit. Its new boss - Michael Gulett - immediately ran into a furore when it emerged he had been given a mammoth golden hello in the form of 10m free share options.

The company raised £126m when it floated and having burnt through a sizeable chunk of that cash was forced to hand back about £50m to shareholders in 2003 - thanks in part to a shareholder revolt lead by colourful City character Andrew Regan. As the profit warnings kept coming, Gulett resigned.

Over the past five years his replacement, Carl Schlachte, has steadily built the business, selling its chip designs to a range of major equipment manufacturers and building a royalty stream. On the odd occassion the firm has even surprised analysts with better than forecast results.

It has still not, however, made a profit.

Schlachte announced his resignation in May and he will be replaced by Geoff Bristow, currently the senior independent director of the company.

Obviously the slow turnaround at ARC has been noted. The company refused to comment on the identity of the bidder, but they look set to get the firm for a fraction of what it was once deemed to be worth.